Supply Chain Blog

FMCG/Pharma KPI Scorecard: How accurate are your calculations?

Posted by Dave Jordan on Thu, Oct 31, 2013

Well I find it strange anyway.  Whenever I go to see my doctor she always greets me with a cheery “good morning, how are you?” I always feel like replying “well I‘m in your clinic so there is a fair chance I need some medical advice or assistance”. My dentist never asks me if my teeth are ok and my solicitor never thinks I have just popped into his office for a timed and expensive chat about football. If you go into a barbershop there is every chance you have a hair cut in mind and you are not there to buy cheese.

KPI Dashboard data verification resized 600On this occasion I was in the clinic to receive the results of my recent annual check-up from the neck-down. Blood and effluent had been collected and analysed for a whole raft of potential bodily malfunctions and anomalies. On this occasion despite a badly timed Indian take away the night before the blood letting, I was passed fit. In fact the doctor actually said I was in the best condition for a man of my age that she had ever seen.

With a spring in my step I walked by the unhealthy people in the waiting room and left the clinic beaming before I took a look at the detailed analytical results. Oh very good, a doctor with a sense of humour. In the box showing my age was the number 450! While I found this very funny I also wondered if the error was one of data input or data manipulation.

Was it simply someone with a fat finger typing my details into the form while dreamily thinking about the performance of Dave the Hairy Biker on Strictly Come Dancing? Or, did the error occur outside of obvious human control inside a slick piece of IT software? Even so, although we are making huge technological advances whatever happens inside a piece of software has ultimately been designed and built by a human who may or may not be a follower of pink lycra.

How confident are you that the KPI Dashboard numbers on which you and your senior FMCG/Pharma colleagues rely are 100% accurate? Has anyone double checked that the logic behind the KPI generation is actually right and still valid for the current situation? Are the KPIs actually incorrect and guiding your business down a route you really shouldn’t be taking? As ever in business, trust is good but check is much, much better!

As part of your standard operating procedures on at least an annual basis you should:

  1. Review the principles behind KPI selection and adjust as per current business needs, e.g. are the top 20 SKUs still the top 20?
  2. Review the calculation steps and logic behind each KPI.
  3. Test the IT software by calculating manually or in another IT package – painful but well worth it if this reveals any serious error or bias.
  4. Challenge the IT system by inserting dummy numbers to force out-of-specification limits notifications.

Simply, a little validation and verification is what you need.

Humans do indeed make mistakes but only humans will spot errors in data insertion or data manipulation. Just because an ERP or Finance IT package is expensive with a sexy name it does not mean it is always 100% correct or infallible.

Image courtesy of Grant Cochrane at freedigitalphotos.net

Tags: FMCG, Dave Jordan, CEO, Performance Improvement, Pharma, KPI, Supply Chain

FMCG Foods: Shocking Retailer & Producer Waste

Posted by Dave Jordan on Tue, Oct 29, 2013

That is an astonishing amount of food waste. Tesco in the UK has held its hands up and admitted it has generated 30,000 tonnes of food waste in the first 6 months of 2013. If that waste rate continues unabated it will reach an enormous 60.000 tonnes for the year. That is roughly the annual production volume of a decent sized food factory.

This refers only to Tesco so if you add in Asda, Morrisons, Sainsbury’s etc and the smaller retailers and assume a similar level of waste, the actual amount of goods produced but not consumed must be around 500,000 tonnes! Plus, that is just in the retailer’s possession, what about the food that ends up in millions of domestic rubbish bins?

If the same is true in other developed markets the figure wasted must be measured in millions of tonnes. Rightly, various organisations have spoken out about such excessive food waste when large parts of the global population struggle to feed themselves every day.

FMCG Tesco Waste resized 600Shocking figures indeed but think about what that means for the UK foods business as a whole. Based on my rough estimation this tells us that half a million tonnes of food were produced to a high quality standard for top-notch retailers and they and the producers received no income in return. Yes, some contracts may pass the financial burden onto producers but whatever way you look at it the waste pyramid expands significantly when you take into account all associated costs.

When all those fruit, vegetables, bakery goods and more start rotting in the ground or feeding livestock what else goes with it?

Someone was paid to source and order the raw materials and packaging.

A truck was loaded and brought the RM/PM to the factory.

The goods were unloaded and stored in a warehouse.

Production planning called-off the RM/PM.

Someone brought the materials to the production area.

Product was manufactured, packed and palletised.

Someone carried out relevant QA checks.

Finished goods were moved back in to another warehouse where they were stored before someone picked the pallet for despatch.

Once loaded on a truck the goods were delivered directly to a retailer or to a cross-docking platform.

Once at the supermarket the goods were unloaded into the back of store warehouse before finally reaching the shelf ready for sale.

All standard costs which will be included in COGS but they didn’t sell did they? So….

Someone had to empty the shelves and move the stock back into storage.

Someone had to pay for the storage and isolation of the stock.

Someone had to arrange destruction or donation or recycling.

A truck was loaded and took the goods to their final resting place.

As the quoted value of the wasted food is at the retailer level then it will include their lost margin but it does not show the full cost of failure to sell. Add in the disposal costs, promotional expenses, an untold volume of unaccounted telephone calls and endless paperwork/certification and the actual loss is probably even higher than these incredible published figures.

In an industry suffering from stalling economies these losses are not sustainable for bottom line and Corporate Social Responsibility (CSR) reasons. Sort it out!

Image courtesy of scottchan at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Supply Chain, Forecasting & Demand Planning, Cost Reduction

FMCG Demand Signal Generation; TISWAS, TV Cooking & Sushi

Posted by Dave Jordan on Wed, Oct 23, 2013

When I was a Saturday morning TV addict in UK the must-watch show was ITV’s TISWAS which featured the thigh booted Sally James and I think there were some other presenters. The alternative offering was the much posher and less anarchic Swap Shop on old Auntie Beeb fronted by a man with a beard and a knitted tank top or was it a tank-top and a knitted beard? Saturday morning was never complete without a dose of TISWAS flan flinging fun.

So what are the 2013 viewing options for Saturday morning TV in UK? Cooking. Yes, cooking. Making quiche, cakes and dribbling jus – whatever that is – over pan-fried duck breasts is now the Saturday morning staple. I guess all the children are on IPhones or Facebook or some other high tech recreational toy leaving a free weekend slot for chef’s – usually male – to entertain by cooking. They even repeat the same stuff on Sunday morning just in case you missed the live transmission! “Ooh, I cannot wait to see Jamie slice that juicy chicken so precisely once again.”

Come on Dave, what does this week-end sauce, flan, bake and devour theme have to do with a Supply Chain? The answer to that takes us to a Sushi Restaurant that operates a conveyor belt system of small portion food delivery. I tried one last week in Birmingham and I think I am now hooked on the concept.

Sushi demand signal S&OP resized 600A continuous stream of Japanese delicacies is brought within inches of your chop-sticks for you to inspect and choose. No trying to catch the attention of a waiter or wishing you could have just a little more salmon here or more rice there. All the food options move slowly past your eyes and if you want it you take it. To me the experience is rather like shopping on an internet screen but the goods arrive without delay.

How do they manage to avoid under-stocking which affects customer service or over-stocking and ultimately waste? Dishes of raw fish cannot travel the conveyor ad infinitum or else the bathroom queue would be continuously lengthy. To avoid this, each clear, plastic dome covering the dishes has a small sticker which shows an expiry time when it must be taken off the conveyor.  I suspect some up market venues will have a bar code system so this stock withdrawal can take place automatically without human interference.

How do they forecast what delicacies to put on the conveyor and how many of each dish as getting this horribly wrong every day would be very expensive? Peak lunch and dinner times are probably safe enough but outside those hours how do you estimate demand?

pulse demand signal generationLike any FMCG/Brewing/Pharmaceutical business there has to be a period of trial and error in order to establish a decent demand signal based on historical data whilst also taking into account peak-generating marketing and sales activity. If you announce a BOGOF promotion on chirashi or makizushi - yes, they are correct - then the kitchen needs to know well in advance to order and prepare the correct ingredient and quantities.

You see such a growing number of thriving Sushi Restaurants to indicate that they have gone through the pain of establishing a demand baseline that allows them to operate profitably and with good customer service. How diligently has your business tackled this challenge within S&OP?

Sushi image courtesy of satit_srihin at freedigitalphotos.net

Demand baseline image courtesy of jscreationzs at freedigitalphotos.net

Tags: FMCG, Dave Jordan, S&OP, Forecasting & Demand Planning, Inventory Management & Stock Control

FMCG Forecasting: Ice Cream, chocolate and pregnancy…….

Posted by Dave Jordan on Wed, Oct 16, 2013

You will have to bear with me on this one. Do you know that on average 85% of expectant women suffer food cravings during pregnancy? Apparently, the top 5 are:

Pickles              5%  - yuk, that surprised me too.

Cheese             11% - get those calories in.

Crisps/chips     15% - much needed salt.

Chocolate        17% - feel-good food.

Ice Cream        23% - junk food craving or just indulgence as you put on weight anyway?

S&OP Forecasting fmcg chocolate resized 600Satisfying these cravings over the 9 months must lead to a significant extra expense (which might actually gently prepare prospective parents for the post natal expenses that will not go away for a very long time).  This leads me to consider that there are specific windows in the calendar when opportunities for cost effective pregnancy cravings exist.

If you crave chocolate then the best time for a pregnancy should include Christmas when you can take advantage of everyone buying you chocolates anyway plus the post holiday BOGOF and more promotions to get rid of all the excess stock in retail. If you need a chocolate fix it does not matter if it is in the form of a stack of standard bars or if it is a box of chocolate Wayne Rooney/Shrek figurines. As long as you satisfy the chocolate fix then all is well with the world.

If you are really clever with your timing you might be able to stock up with discounted chocolate products in January that last you until Easter when everyone aware of your craving buys you chocolate again and then you can gorge on endless stocks of 2 for the price of 1 bunnies and eggs.

S&OP Forecasting ice cream resized 600Like the majority of women in this survey my wife craved ice cream. This would have easily manageable had we been in UK but were located in Saudi Arabia. Even in the cooler months getting ice cream from shop to the home freezer required an ice box. Without some sort of chilling system anything you bought would quickly revert to sugar, fat and water. To avoid emergencies we had to overstock at home but ease of availability meant this rapidly diminished and led to numerous middle of the night dashes to find more ice cream.

So, if your must-have food is ice cream when is the best time to be pregnant and not break the home budget? If you are in the northern hemisphere then September/October is the ideal time to have an uncontrollable ice cream craving. Take a look at your local supermarket and you will see that the most promoted/discounted products are ice creams. BOGOF is common and as the time passes you will eventually see buy 1 get 4 free or more until the stock is finally exhausted, the product expires or the store wants the retail space returned.

I know it is very difficult to forecast demand for ice cream. Global weather is becoming increasingly more unpredictable and even a few short weeks of a gloomy summer can ruin producers’ sales campaigns. Producers do have very sophisticated tools that monitor the weather providing indexes and algorithms they can use to understand likely demand but nothing can be 100% perfect.

Companies like Unilever and Nestle must be expending considerable resources on trying to get more reliable demand signals as the annual write-off costs continue to hit results. These financial loses will probably rise as our climate becomes less predictable.

Good news for expectant mothers but bad news for CEO’s and CFO’s everywhere.

Ice Cream Image courtesy of Digitalart at freedigitalphotos.net
Ice Cream Image courtesy of David Castillo Dominici at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Forecasting & Demand Planning, Sales, Inventory Management & Stock Control

Sales & Operations Planning (S&OP): Getting Sales people involved?

Posted by Dave Jordan on Thu, Oct 10, 2013

Flying stopped being fun a long time ago. To travel even the shortest distance you have to check hours before the flight and then you seem to queue endlessly until you arrive at your destination.

Security checks demand your coat, shoes, belt, false limbs are removed and your PC is taken out of the bag and then you awkwardly put it all back on and in. I tried to speed up my security experience by wearing exactly 6 pieces of clothing and not carrying any metal but I still got beeped for a prod with the security sausage by a man whose similarity to Elton John was far too close for my liking.

Of all the nasties airlines do to passengers the worst has to be the tannoy announcement that Mr. X, Y and Z are delaying the departure of the flight. You then see 3 suits with ties flapping and faces reddening due to far too much hand luggage and too many “free” sandwiches in the business lounge, walk-running to the gate. They are physically man-handled on board and the doors slammed shut before the plane spends the next 2 hours sitting on the tarmac waiting for a slot.

Airlines know this is going to happen but they still do it and then roll out the apology announcements. Of course, now all the other passengers think the trinity of unfit businessmen is the cause of the delay and sit muttering behind newspapers and the rip off duty free magazine.

When I travel alone I do not communicate unless I really have to and when trapped on a plane the last thing I seek is a chat with the passenger next to me. I was once sitting on the tarmac waiting for a “slot” when the lady next to me asked me if I was going to the Hypertension Conference! What an opening gambit for a conversation with a stranger? I don’t recall answering verbally as my face may have indicated that I was going to said conference but seeking treatment, not speaking.

Humour S&OP Sales Supply Chain resized 600Notwithstanding the above chat-up line, such 7A to 7B discussions are all about the same topics. Where are you going? Where do you live? Have you been before etc, etc? My last 7A to 7B conversation was with a very boring FMCG man on the steaming tarmac at Doha. I finally asked if he wanted to hear any Supply Chain jokes, as it is easy to offend people in the Middle East if you start off on a Les Dawson Mother-in-Law theme. You cannot upset anyone with a Supply Chain joke, can you?

I kicked off with the build up to a joke about Sales & Operational Planning (S&OP) and was immediately interrupted by the man smiling and saying “you should be careful as I am a Salesman”. My reply of “ok, don’t worry, I will tell it really, really slowly” didn’t go down too well but at least it drew the conversation to a quick closure, job done.

Getting some sales people 100% on board with S&OP is like trying to get non-alcoholic beer into my refrigerator. The door simply will not open.

Image courtesy of boulemonademoon at freedigitalphotos.net

Tags: FMCG, Dave Jordan, Humour, Supply Chain, S&OP

FMCG Developing & Emerging Markets (D&E): Invest properly for growth

Posted by Dave Jordan on Tue, Oct 08, 2013

A number of years ago I was a science techie in a white laboratory coat trying to make detergent powder through non-standard methods - well somebody had to! After much trial and error an innovative solution was developed which resulted in significant savings and a pat on the back. The new process required the use of a specialist ingredient which was inevitably very expensive.

Crusty dinosaurs from HQ would bleat on about how you cannot use a specialist ingredient in a detergent powder as it was simply not cost effective. My standard retort was consistently “it is only a specialist ingredient because so few people buy it yet”. A little tongue in cheek perhaps but the principle was that the material would always be specialist if it continued to receive a low level of purchasing interest.

FMCG S&OP D&E markets resized 600This cunningly leads me on to profit and performance warnings by blue-chip FMCG companies. I have been working with a company that is struggling to maintain growth in Developing & Emerging (D&E) markets and has identifed S&OP as the prime source of failure. Coincidentally, Unilever recently announced that growth performance in D&E markets was below expectations, news which caused a sharp share price dip. With most companies seeing flat to negative growth in developed markets any glitch in D&E growth obviously sets the alarm bells ringing. But, are D&E markets really receiving the corporate attention they deserve?

The large (but not growing) countries in W Europe, USA etc have seemingly bottomless resources to throw at any market opportunity, cost saving or efficiency improvement project. At best, those huge financial and human resources are delivering market performance status quo. Furthermore, if negative growth is the order of the day then companies should consider whether these valuable resources could be utilised elsewhere for better return.

Some countries seem to have been on D&E lists forever - if they do mature does this automaticallly mean the end of growth? These countries receive the odd inconvenient tick-box visits from global teams but do they really receive sufficient attention? They should do if you are telling your investors that D&E markets house the few areas of growth in the current economic climate.

Perhaps D&E countries stay D&E countries simply because they never receive enough attention to develop their potential and approach mature market status. Are you investing heavily by propping up mature locations while ignoring the D&E potential? Following my detergent powder experience, if you do not develop D&E markets they will always be D&E………..

Of course, companies cannot overcome structural and political hurdles within a particular country but a realignment of resources could pay immediate dividends, literally! For example, why are D&E countries the last to receive professional coaching and guidance on global initiatives such as S&OP? If this is where you are pinning your growth hopes and pension pot aspirations then these are the places where expert resource should be allocated.

I wonder how much growth is being lost through failure to adhere to the simple, beneficial discipline of S&OP. The Unilever announcement does not specify the exact source of the performance dip but I would bet a little of my own pension pot that some element of the D&E deficit is directly related to poor S&OP deployment.

Image courtesy of Stuart Miles at freedigitalphotos.net

Tags: FMCG, Dave Jordan, CEO, Performance Improvement, S&OP

FMCG/Pharma KPI Scorecard; Traffic Light Colours Explained

Posted by Dave Jordan on Wed, Oct 02, 2013

Those of a certain age and a fondness for seriously daft comedy may recognise these lines from a Monty Python song. The full version is available here but this short section provides the general gist of the lyrical content quality:

He likes traffic lights,
He likes traffic lights,
He likes traffic lights,
But only when they're green.
I like traffic lights,
I like traffic lights,
I like traffic lights,
That is what I said.
I like traffic lights,
I like traffic lights,
I like traffic lights,
But not when they are red.

No, honestly this is a real music track. Classic lyrics don’t you think?


There are numerous interpretations to what the different colours and sequence of traffic lights actually mean depending on your location. Taking the UK as an example: 

  • Red (stop)
  • Red and amber (stop, indicating the light will turn green)
  • Green (proceed with caution)
  • Amber (stop if possible to do so as the light is about to change to red) 
After visiting 40+ countries and collating the driving experience I find that these lights can also apparently mean: 
  • Red (read a newspaper and/or re-do lipstick, rev the engine, ogle pedestrians, talk on telephone)
  • Red and amber (rev the engine louder and have the clutch biting at 1st gear, honk horn at girls, dramatically flick hair back)
  • Green (release clutch & screech ahead with abandonment shouting at slow pedestrians to move. Pick up telephone)
  • Amber (put your foot down & drive faster before red appears as you have already read the newspaper and the phone is out of battery)  
Supply Chain KPIsNow that may well be an extreme generalisation but I bet everyone sees some of that behaviour every day. What about at work? If your business is well run you should also be seeing traffic lights in the form of a KPI Scorecard on a daily basis. This is designed to make current performance and trends crystal clear to everyone without having to delve into endless data. In a typical FMCG or Pharmaceutical company the KPI traffic lights should mean: 
  • Red (the measure is significantly behind the target and requires top team focus to implement improvement)
  • Amber (the measure is slightly outside allowed limits and requires attention to ensure no further drift. Take actions to bring the measure back within acceptable parameters)
  • Green (proceed with caution. Measure is on target but still requires vigilance) 

The point about the K in KPI is that the measures you choose to monitor on a weekly or monthly basis are indeed key, important, vital. You do not measure something that makes no difference to the business as a whole so amber or red lights mean you business is off course and needs top team attention, immediately!

As in the case with driving a car I am sure you can allocate some other non-ideal behaviours to these colours! Please feel free to comment with your suggestions.

Image courtesy of digitalart at freedigitalphotos.net

Tags: Brewing & Beverages, FMCG, Dave Jordan, Humour, Performance Improvement, Pharma, KPI